Takeaways from the Latest Research in Consumer Financial Decision Making

Takeaways from the Latest Research in Consumer Financial Decision Making

Once a year I take a break from industry conferences and vendor analyst days by going to the Boulder Summer Conference on Consumer Financial Decision Making, hosted by the Center for Research on Consumer Financial Decision Making at the Leeds Business School at the  University of Colorado Boulder. Academics, regulators, central bankers, and a handful of private sector people (like me) gather to discuss the latest research in the field. For many bankers much of the content is, frankly, too academic, but there are always some nuggets worth passing along to those who are interested in forging closer connections with their banking customers. My key takeaways follow.

Consumer data is valuable; advertisers & consumers don’t get their fair share

We all know that data is valuable; The Economist has even called it our most valuable resource, the new oil. Banks have historically not done a great job of monetizing the data they have, but neither have consumers. Consider a three-actor model for internet advertising consisting of an advertiser, an ad exchange, and the consumer. In different scenarios (which vary by who has how much information on consumer demographics), the ad exchange typically is the big winner, the advertiser comes in second depending on how much data they have, and the consumer rarely gains any of the economic benefit. Who’s going to step up and design a business that helps consumers monetize the value of their data?

Scope Insensitivity can be used for good

I’ll admit that this is a new concept for me, and one that is completely counterintuitive. Here’s an example from a site called LessWrong:

Once upon a time, three groups of subjects were asked how much they would pay to save 2,000 / 20,000 / 200,000 migrating birds from drowning in uncovered oil ponds. The groups respectively answered $80, $78, and $88. This is scope insensitivity or scope neglect: the number of birds saved – the scope of the altruistic action – had little effect on willingness to pay.

Researchers studied this phenomenon with credit card bills. They found that a group of people struggling with debt tended to pay roughly the same (rounded) amount on their credit card bills each month, regardless of the balance, a classic case of scope insensitivity. Here’s the clever part: it turns out that if people are paying, say, $50 once a month, they’re generally willing to pay roughly that twice a month, thereby improving their financial position over time.

Getting people to take action, let alone change, is really tough

An experiment in the UK tried five different ways to let consumers know that they could earn a higher rate of interest with a different kind of savings account at their existing bank. In the best case, only ~10% of those notified acted on the offer. There were a variety of hypothesized reasons, and there was certainly a great deal of consumer inertia at play, but I was frankly surprised at the low take up rate. The most successful scheme used a form that a customer could sign and mail back in to make the switch. It was familiar-looking and relatively simple, but still had a low acceptance rate. I’d bet that a lot of people were suspicious of the offer; it simply looked too good to be true, and why would my bank offer to switch me into a product where I’d be earning more?

I also liked the categorization of three flavors of switching costs. Paraphrasing, they’re ignorance, inertia, and inattention. While it may be difficult to rank the relative importance of each, bankers seeking to change behavior should be clear about which obstacle they’re trying to overcome.

Using Prepaid Accounts to set aside funds shows some promise

I’ve long advocated that banks and credit unions consider taking a portion of their marketing dollars and use them to pay consumers directly to encourage better financial behavior. An experiment tested various methods to encourage consumers who held the American Express Serve prepaid card to save. There are now some early indications that incentivizing consumers by paying them $10 to try out the savings feature is an effective strategy. More details are available at a landing page for the study here; it contains a link to the full report.

As the research from the CFPB states,

The results emerging from this pilot suggest that incentivizing prepaid card customers to save, and providing an opportunity for them to do so using a savings feature that keeps funds dedicated for saving separate from those used for spending, could provide tangible financial benefits. Consumers in this pilot demonstrated a willingness to take up the savings feature, indicating interest in alternative savings vehicles, and some customers also reported actual changes in their financial behavior.

Financial Education, done right, can work

Much work at prior Boulder conferences has examined the failures of financial education / literacy programs to make a significant difference. My hypothesis has been that many of them simply weren’t very good, so they didn’t work. To simplify, it’s the difference between having a good teacher guiding a well-designed course vs. a bad one teaching crummy material. As program designers learn what makes a program good, they’ll design better offerings, and efficacy will improve. An interesting pilot on 529 enrollment used parent education via a 45 minute session, together with targeted incentives and a thoughtfully designed curriculum, showed promising results. So, too, did an experiential program called My Classroom Economy that incorporated elements of financial education into classroom settings throughout the day, regardless of the course, and without having dedicated lessons set up specifically to teach financial literacy.

Like the American Express experiment, the use of a $50 offer to seed the 529 account was critical in enticing people to take the time to open the account before they left the education session. Immediate action to overcome inertia, together with a financial incentive, was critical.

Caveats and wrap-up

Let me end with a caveat: the researchers are much more precise, measured, and nuanced than I am in their reporting of their findings. They are extremely careful to note the limitations of their research and circumspect about its broader applicability. I may be overenthusiastic in my interpretation, and have not taken the time to caveat my interpretations of their research as carefully as they would. Nevertheless, the insights that these and other researchers continue to generate have potentially-far reaching implications as banks try to improve their relationships with customers and generate win-win outcomes.

Banks aren’t Alone in their Omnichannel Unreadiness

Banks aren’t Alone in their Omnichannel Unreadiness

In December, Celent surveyed a panel of North American banks and credit unions to assess the current and likely future state of retail and business banking channel systems. The report is chock full of fascinating insights. Among them is a rather sobering self-assessment of banks' omnichannel delivery capability

A recent experience renting a car painfully demonstrated that banks aren’t the only ones that have a ways to go.

7:00 AM…

Me: Visited the company's website. Easily searched and located a car at a location very close to my home. Quickly booked the automobile and received an e-mail confirmation promptly. The web site displayed the location of all area locations and recommended this one based on its proximity to my known location. Reservation for 2:00 this afternoon. So far so good.

10:00 AM…

Enterprise called and left a voicemail indicating there were some “qualifying details” we would need to discuss prior to my 2:00 PM reservation.

10:30 AM…

I returned the call. The problem was that I reserved an intermediate size car and none were available – just large SUVs and 15-person passenger vans. That relevant information was not conveyed in my otherwise stellar digital experience with the brand.

  • Me: “What about other locations?” I asked.
  • Agent: “I can see what they have on the lot, but I don’t know the plans they have for them. Unfortunately, I can’t book for you. Feel free to call other locations yourself and see which ones may have an intermediate size car for you.”
  • Me: “You mean I have to dial for dollars around Greater Atlanta to find an intermediate size car? Your web site indicated availability and gave me a confirmation. What’s up?”
  • Agent: "Sorry, but that's a long story. Look, if you’re okay driving a large SUV, I can give it to you at an intermediate rate. Would that be okay?”
  • Me: “I think so. It’s not what I want, but I’ll take it.”
  • Agent: “Do you need a pick up also?”
  • Me: “Yes, please – just prior to 2:00 – thank you”

1:30 PM…

The phone rings again, it’s Enterprise. This time, it is the location calling, not the contact center.

  • Agent: “Sir, we have a problem with your rental reservation. We don’t have any intermediate size cars at this location.”
  • Me: “Yes, I know. I spoke with your colleague at 10:30 this morning. You agreed to rent me an SUV at an intermediate price and pick me up prior to 2:00.”
  • Agent: “Do you know who you spoke with?”
  • Me: “I’m sorry, no. I didn’t get his name”.
  • Agent: "Was it a man or a woman?"
  • Me: "It was a male colleague of yours, but I don't recall his name."
  • Agent: "Was he from this location?"
  • Me: "I don't know. By the way, why whould I care?"
  • Agent: "Well, I've been pretty much the only one working at this location all morning."
  • Me: "Thanks for sharing, but what does that have to do with my reservation?"
  • Agent: "I'm just trying to find out who you spoke with."
  • Me: "Why is that relevant? I have a reservation and we have an agreement – and it's almost 2:00."
  • Agent: "I dont think he was supposed to do that."
  • Me: "So, are you going to rent me a car, van, SUV or whatever for an intermediate rate or not?"
  • Agent: "Yes, sir, we'll do that.
  • Me: "Great – see you in a few minutes".

A few days later…

Atlanta traffic kept me from returning the rental during normal business hours. Handily, there are provisions for after-hours drop-off. The rental is processed the next business day and costomers receive a final receipt via e-mail.  That's the plan, anyway. It's been several days and no receipt. After calling the store, I was told the e-mail system has been down.

My bank looks very good about now.

Customer engagement: how little things make a big difference (one analyst’s experience)

Customer engagement: how little things make a big difference (one analyst’s experience)
Typically, analysts opine based on analysis of industry data, informed by product demonstrations, telephone interviews and occasional focus groups. This time, I simply share my own experience at a top-5 US retail bank to illustrate how even seemingly little things may have significant customer impact – both favorably or unfavorably. This past weekend, I had a document needing to be notarized. Both my spouse and I had to sign the document and we had a busy weekend agenda. Recalling that as an account holder at a top-5 US bank, notary public services would be free of charge, I planned to visit a convenient branch in-between Saturday morning events. What could be easier? Recalling this bank was one of the relatively few that offered digital appointment booking, I thought it brilliant to book an appointment, rather than taking my chances upon our arrival at the branch. Plus, I was looking forward to getting up-close and personal with the appointment booking workflow. The bank’s appointment booking application was marvelously easy to navigate, but to book an appointment; one had to select an area of interest. This is a reasonable and beneficial requirement, because selecting an interest area ensures the subsequent meeting occurs with someone with requisite knowledge. The problem was that notary services wasn’t listed in the drop-down menu of interest areas. No appointment for me! Without the ability to book an appointment, I sought to make sure the branch nearby to our other activities would be open when we were available. Back to the bank’s website. Easily done, except for the repeated “Make an Appointment” buttons staring at me upon nearly every mouse click, which at this point served as an irritant. It caused me to think. On one hand, well-done to the bank for making the ability abundantly obvious. On the other hand, why no appointments for notary services. Are such needs rare, or does the bank only invite appointments for direct revenue-generating activities? The closest branch was no longer offering Saturday hours, so we trekked to another branch that was a bit out of our way, arriving just past noon. Being a Saturday, I expected it to be busy, but was unprepared for what I saw. Three staffed teller positions were active. All offices were conducting meetings and there were four people waiting in the lobby – complete with restless children which we were happy to entertain. To “speed service”, I was invited to check-in. The process wasn’t exactly high-tech. It consisted of a clipboard resting on a small table with space to write my name and time of arrival. Most of the previous names were scratched out with a combination of black and blue ink, so I figured our wait time would be acceptable. User impressions aside, I was struck with the notion that this very large bank had no consistently gathered information about why customers visit their branch, if they were actually served or not, or what their wait times were – unless some poor soul transcribed all our scribbles into a database. Not likely. Maybe that’s why they don’t offer appointments for notary services. After about a 10-minute wait, we were greeted by a well-dressed young man offering to assist. He quickly affirmed his ability to perform notary services and asked what it was that we needed notarized. I presented him our 1-page quit claim deed, whereby he apologetically replied that, while he was a notary, the bank was not able to notarize deeds. If only we had another sort of document, he would have gladly helped us. At least, he offered an alternative for us – driving back to the UPS Store next to where we hadbeen. No wait + $2.00 and we were done. We didn’t even need an appointment. I learned an important lesson that day.

The importance of customer experience in financial services

The importance of customer experience in financial services
Service Design. Journey Maps. Customer Stories. Mood Boards. Experience Recovery. These are a handful of the topics discussed at this week’s Customer Experience for Financial Services (CXFS) Conference, organized by Worldwide Business Research in Charlotte, NC. As an analyst currently immersed in research on corporate banking financial performance, regulatory environment, economic conditions, business demographics, and financial technology, the CXFS event was a welcome change of scenery.
Journey Mapping

Journey Mapping

The CXFS conference was all about the “voice of the customer” (VoC) and how financial institutions (FIs) can improve their customer “listening” skills. One of the sessions mentioned that FIs are listening to anywhere from four to ten channels including web site, call center, e-mail, Internet, customer surveys and social media. But as one presenter stated, having more VoC channels doesn’t automatically result in a better customer experience. For example, in recent years many global banks fully integrated their major lines of business with product, operations and technology grouped organized under one segment leader. These integrated groups have created silos which create a highly verticalized client experience (CX), preventing consistency across a firm. Event attendees were encouraged to “climb over the silos and create a collective story to make things change”. Customer experience strategy and technology have gone a long way since I was involved in online banking user interface design in the early 2000s. Technology providers at the event are enabling banks to digitize and tag unstructured data such as call center recordings, agent notes, e-mails, and social media posts. This enables firms to mine and analyze the data to inform customer-centric innovation. Other firms specialized in market research including voice of the customer and voice of the employee surveys. Customer experience consultants are helping firms to understand how customers are thinking, feeling, seeing, saying doing and hearing so that people, processes, products and technology can be improved. The event featured discussions on how to build CX into people, processes and products by creating centralized information stores, centers of excellence, customer councils, and shared KPIs. Most of the FIs at CXFS were early in their customer experience journey and still working out a comprehensive solution. My favorite quote of the event was advice from Ingrid Lindberg, CXO of ChiefCustomer.com: “Have the patience of a saint, the heart of a lion, and the tenacity of a street fighter because it is one giant game of Whack-a-Mole.”

Banks are asking the wrong customer engagement question

Banks are asking the wrong customer engagement question
I have heard banks ask, “How to we use digital channels to bring traffic into the branch?” The rational is straightforward. After years of promoting self-service channels, branch foot traffic is declining – along with the sales opportunities that foot traffic represents. It’s a logical question, but the wrong question. A better question would be, “How do we enable effective customer engagement on their terms regardless of the channels involved? Rather than seeking to influence customer channel preferences, banks should be all about maximizing the effectiveness of each and every engagement opportunity, regardless of channel. They don’t seem to be. One no-brainer example is digital appointment booking – the ability for customers to book an appointment with a banker at a time and place of their convenience – using the bank’s online or mobile platform. Doing so represents convenience for the customer, a logical indicated action as part of online product research and an opportunity to improve branch channel capacity planning (because of the added visibility the mechanism provides). But, the most compelling reason to offer digital appointment booking in my opinion is because doing so maximizes the effectiveness of branch engagement. How so? Done well, frontline staff know who is coming and for what purpose. Consequently, they’re better prepared for the conversation. Banks that have implemented digital appointment booking are seeing significant improvements in sales results. Digital appointment booking should be commonplace – but isn’t. In a October 2014 survey of NA financial institutions, just 8% of respondents offered this capability. Most were large banks. OAB adoptionSource: Celent survey of North American financial institutions, October 2014, n=156 Even better would be to extend the appointment booking option to digital channels, as a phone or telepresence conversation. Engagement doesn’t have to be limited to face-to-face interactions – but is, in all but the largest banks. In the same survey referenced earlier, just 20% offered text based chat online, 12% offered click-to-call and 2% offered video chat. Online Channel Engagement CapabilitySource: Celent survey of North American financial institutions, October 2014, n=156 So, while banks offer abundant digital transactional capabilities, engagement remains largely something only offered at the branch. That dog won’t hunt for long!